Money Week – Your personal financial journey
As part of our Money Week series of articles we have already looked at smart ways to use your credit cards and the importance of being cashflow rich (not just asset rich).
Your personal financial journey is a long one. Pretty much starting from when you start earning/receiving your first dollars (whenever and however that is!), or when you accept a loan from someone.
It then continues on till you kick your bucket at some stage. Even in death, if you didn’t sort out your estate before you passed on, then financial issues will still raise its head – but on the bright side, you won’t be around to face them! Putting those morbid thoughts aside, have you ever wondered how you are going to fund your entire financial journey?
You are likely going to spend about 40-45 years of your life working. That is also the time you have the best chance of earning an income from salary or wages. The period from when you are 20 to about 65 are also the years you are most likely to be building up your assets (for example buying a house or investing in shares etc.). But, given all the advances in the field of medicine and a better of quality of life, it is likely that you may live up to be 95 or 100. Meaning, you have a period of 30 years after you retire when you are also highly likely not to earn an income from a salary or wage.
This stage in life is the ‘drawdown’ stage – literally meaning you are drawing down the wealth you have created prior to retiring. So the question for you is whether you are on track to build up enough wealth to be drawn down for the rest of your life. Clearly, part of the challenge is you don’t know how long you are going to live.
Being financially resilient is to have a plan or a strategy to give you financial independence throughout your life – being able to spend on the things you would like to continue enjoy doing in life.
While New Zealand has a national retirement scheme (NZ Super), individual entitlements from this Govt. initiative are highly unlikely to be sufficient to maintain the lifestyle you want to in your retirement years. The KiwiSaver initiative was introduced 11 years ago to provide a supplementary savings pot for yourself, over and above your NZ Super entitlement.
To put some context to what it could mean in real dollar terms. Take the case of a 30 year old who is contributing to KiwiSaver at the 3% rate and assume they are on an annual salary of $60,000, and invested in a fund earning an average 6% p.a. This individual will have close to half a million dollars in their KiwiSaver account by the time they hit retirement age – that’s a serious pot of money!
So then the question arises – are you sure you are in the right KiwiSaver fund that is going to maximise your retirement balance? That needs homework on your part.
A big part of being financially resilient is being smart about how you mange your money. Do you know if you are invested in the most suitable KiwiSaver fund? There are about 245 different funds you can choose from and they all come in different shapes and sizes – different fees and costs and different risks and vastly varying performances. Choose carefully!
The PocketWise Team